Anuj Puri, Chairman & Country Head, JLL India
The government recently announced that interest rates of 3% would be applicable on loans of up to INR 12 lakh and 4% on loans of up to INR 9 lakh, under the Pradhan Mantri Awas Yojana (PMAY). Now that two new income categories can avail higher loans with interest subsidies, we expect some more clarity on actual definition of beneficiaries who can avail of these benefits. For example – would young urban professionals hoping to buy their own apartments but not belonging to either the EWS (Economically Weaker Section) or the LIG (Low Income Group) segments be allowed similar subventions? Also, affordable housing is largely available in the fringe areas of metros and tier-II, III cities. Would certain redevelopment projects within the metropolitan city limits – and meeting the affordable housing definition – be granted similar benefits?
First-time home buyers were given additional INR 50,000 tax exemption in the last Budget for a house worth upto INR 50 lakh with a loan of upto INR 35 lakh. This announcement mostly benefited end-users in tier-II, III cities but not as many in the bigger metros where housing is largely above this specific limit. Can the upcoming Budget bring in similar tax exemption for first timers in the metros too? A higher limit specific only to the bigger metros can be introduced.
Also, can middle class youth buying their first house in an affordable project get additional income tax incentives for at least five years? Given the lack of institutionalized rental housing in Indian cities, such a move could spur many fence-sitters into moving out from their rented apartments into owned houses. It could also make developers come up with products suiting this segment.
In the previous Budget, no financial protection was offered to end users against project delays. This Budget can extend tax rebates in cases where projects get delayed due to bona fide reasons. All these efforts can help the government move closer to its dream of ‘Housing for All by 2022’.
The government should increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities. The current limit of INR 2 lakh is insignificant given the ticket sizes in cities, especially in bigger metros like Mumbai, where an overwhelming majority of the available housing is priced at, or above, INR 1 crore.
The tax exemption limit should be auto-set to match inflationary trends in a financial year. Also, tax concessions on house insurance premiums could be introduced to encourage end users to insure their homes.
While the GST (goods and services tax) structure was announced last year, the real estate industry is waiting with bated breath to see which tax rate is applied to the real estate and construction industry. What would happen to the abatement scheme allowed under the service tax regime? Currently, developers and home buyers can obtain service tax benefits under the abatement scheme.
In case of an under-construction flat purchase, an abatement of 75% is allowed, subject to the flat being less than 2,000 sq ft and sold for less than INR 1 crore, taking the effective tax rate from 15% to 3.75%. If the two conditions are not met, the abatement is reduced to 70% and the effective tax rate to be borne by the home buyer increased to 4.5%.
If, however, abatement rules do not apply under the GST regime, the applicable tax rate would shoot up drastically. Moreover, developers would have already paid service tax and VAT for procurement of goods and services for their properties currently under construction. Will they be allowed to claim credits for input tax paid? Clarification would also be needed on whether credit for input tax would be allowed if the composition scheme has been availed by developers.
With its maximum governance mantra, the government can look at easing the tax reporting structures. Also, the benefits of demonetisation exercise should be passed on to the common man through easing of tax slabs and offering a higher degree of rebate. With the earlier stated intention of reducing corporate tax as well, the idea is to widen the tax net while simultaneously reducing actual tax incidence.
Salaried persons get house rent allowance (HRA) as a component of their total salary, and can therefore claim a substantial deduction in cases where the salary and its HRA component are higher. However, a salaried person without any HRA component or a self-employed person or those who draw lump sum pays without an HRA component can only claim a maximum deduction of INR 5,000 a month under Section 80GG. The Finance Minister can make this limit more realistic and bring it in sync with today’s housing rents.
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